Health insurance exchanges, once touted as the future of health care, have proven to be anything but a perfect solution for consumers.

Although both public and private exchanges have given consumers more options and, with the Affordable Care Act's tax subsidies, have significantly expanded the number of insured Americans, unintended consequences remain.

Among these are resistance from large insurers, who say the individual market has not stabilized and has dumped too many sick people into the ACA exchanges.

UnitedHealth Group (UHG), the nation's largest private insurer, has pulled most of its ACA exchange products, and other large insurers, including Humana, have also retreated from the individual market, citing higher-than-expected costs.

Many insurers who remain in the ACA marketplace have asked for double-digit increases in premiums this year, and both the public and private exchanges have seen more cost pushed onto the consumer in the form of higher deductibles and copays.

In addition, brokers — who have been invaluable in helping consumers navigate both kinds of exchanges — have seen fees from carriers cut back or even eliminated.

However, even as some large insurers struggle with the exchanges, a new model may be forming: innovative systems with narrow networks and a managed care approach are being tried in some markets.

The irony of the ACA may be that it finally succeeds in doing what the HMOs of past decades failed to do: Create a system that truly manages care and keeps people healthier — thereby holding down health care costs.

Private exchanges — have they delivered as advertised?

Private exchanges started being developed before the public exchanges of the ACA. As the insurance industry sought to provide options for employers, the concept of a marketplace with many choices among different plans gained popularity. Although public exchanges have been marketed primarily to individuals, private exchange plans are offered by employers for both families and individuals alike.

Originally, the “consumer-directed insurance” movement sought to hold down costs and get consumers more involved in the health care purchasing process by giving them more choices and more skin in the game. The private exchange model quickly became one of the primary ways to deliver this consumer-directed product.

This movement also allowed employers to move health care benefits from a defined benefits model to a defined contribution model. This resulted in tiered copays and deductibles, something that has also happened with the different “metal” levels of the ACA — gold, silver and copper.

Tony Nefouse, an insurance broker with Indianapolis-based Nefouse & Associates, says private exchanges are very similar to ACA offerings when it comes to individual policies: Costs can be high, and provider networks can be limited. In addition, the variety of plans and coverage options often leads to confusion. “Even with an agent going through it with you, it can be overwhelming,” he says.

And it can also be expensive. Nefouse says for some, the deductible can be as high as $7,000 per year for an individual plan. Such high deductibles have prompted some consumers to take out additional policies to help cover unexpected costs.

The surge in so-called “voluntary benefits,” which cover things like hospitalization and accidents, begs the question: If employer-sponsored benefits were truly covering the health care costs of their workers, would it be necessary to offer additional insurance for accidents and serious illnesses?

“The broker community is now faced with having to offer additional products to offset that risk,” Nefouse notes. “I never would've thought I'd have to sell additional insurance to cover the financial risk of other insurance.”

Confidence in private exchanges waning

With the shifting of costs and risk to consumers, one might expect employers to be seeing big savings with private exchanges. But a recent survey by Pacific Resources, a Chicago-based benefits consultant, suggests employers are losing confidence in the ability of private exchanges to provide significant savings for their active employees.

The survey, which has gathered information from employers for the past three years, found that confidence in the cost savings from private exchanges is dropping. The 2016 survey found that 84.6 percent of those deciding against moving employees to a private exchange said they lacked confidence that the move would save money.

In total, 57.8 percent of firms said they were not confident a private exchange is a viable alternative from their current benefits system. That's up from 34 percent that said they lacked confidence in 2014.

“Essentially, the driving factor for employers moving to private exchanges was to hold down costs,” says Sean Clem, vice president of technology, marketplace and engagement solutions with Pacific Resources.

“But we've found a growing lack of confidence that those cost savings are going to materialize.”

On the other hand, Clem notes, private exchanges are working quite well for retiree populations who are still on company benefit plans.

“Most employers are finding a very consistent value proposition [with private exchanges] in the Medicare market,” he says, adding that employers should look carefully at their benefits strategy to see if private exchanges will really serve their employees well. “We don't feel [private exchanges] are a silver bullet. The employer needs to understand what each exchange model brings to the table and how that helps them deliver on their benefits strategy.”

Brokers role challenged by carriers

For both private and public exchanges, insurance brokers have provided invaluable assistance to employers and consumers in explaining insurance plans. A system that was already fraught with complexity has become more difficult to navigate after a huge new reform law imposed by federal lawmakers.

“There was no blueprint; no one really knew what they were doing,” Nefouse says. “The first year, my average number of communication with someone getting coverage on the exchange was 78.”

The officials who run state exchanges are also dependent on brokers. “One of the things that was most shocking when I took this job was how confused people typically are with health insurance,” said Kevin Patterson, CEO of Connect for Health Colorado. “Of all the types of insurance they buy, they understand it the least — and it's the most expensive and the one that most impacts their lives. When people are making these important decisions, they need help. We know we can work very closely with brokers to get that help.”

However, large carriers have been cutting back on the fees they pay brokers to help consumers seeking individual policies—a decision that could hurt the exchange marketplace, according to Nefouse. “It really devastated a lot of agencies that had partnered with UHG,” he says. “You had some large agencies shut down their individual [insurance policy] departments.”

Public exchanges − covering more people, losing large carriers

Public exchanges were officially introduced with the 2010 passage of the Affordable Care Act—with somewhat disastrous results. After problems with the federal website were resolved, state-run plans continued to be very up-and-down affairs. However, by most measurements, the ACA is accomplishing its goal of reducing the number of uninsured Americans. A recent Gallup poll put the number of uninsured Americans at 11 percent — the lowest rate Gallup has recorded since it began tracking the statistic in 2008.

Along with the good news, though, there has been plenty of bad. Glitchy websites were the bane of consumers, followed by large carriers dropping fees for brokers who help individuals find plans on the ACA exchanges.

More recently, the announcement that UHG would withdraw from the ACA exchanges sent a shockwave through the insurance community. Similar decisions by Humana and regional carriers like Blue Cross and Blue Shield of Minnesota have raised questions about whether the ACA exchanges are sustainable in the long term.

But ACA officials insist that the setbacks are just part of a new insurance model working out the bugs, and say the exchange marketplace has become too important to both consumers and the health care industry as a whole to consider a radical change at this point.

“I remain confident and excited about the benefits [of the ACA exchanges] to consumers, insurers, and our entire health care delivery system,” says Health and Human Services Secretary Sylvia Burwell, at a recent HHS conference for insurers and brokers.

In Colorado, Patterson says they are seeing year-over-year increases in enrollment and a significant drop in the uninsured rate.

“Our uninsured rate was about 15 percent four years ago,” Patterson says. “We were at 6.7 percent [this year].

“We've made huge strides between Medicaid expansion and the exchange programs,” he adds. “Our focus now is providing more people out there with insurance and making sure they are in the right plan so they're not underinsured.”

Minnesota, another state that expanded Medicaid under the ACA and runs its own exchange, called MNsure, also has good numbers to show. According to Shane Delaney, director of communications and marketing at MNsure, Minnesota has also seen enrollment in public exchanges grow from year to year. That, combined with Medicaid expansion and an improving economy, has halved the rate of uninsured residents in the state. “Two years ago, the uninsured rate in Minnesota was 8 percent; now it's 4 percent,” Delaney says. “We're currently at the lowest uninsured rate that we've ever seen in Minnesota.”

The state, which has traditionally had low rates of uninsured residents and a history of strong safety net programs such as MinnesotaCare, nonetheless had a rocky start when it rolled out its website, with long wait times and unresponsive pages. Those problems have been hard to eliminate completely, but Delaney said progress has been made. “Our launch was not the smoothest,” he admits. “But the feedback we're getting is that the process is improving. People who are getting coverage rate the experience as positive.”

However, both Minnesota and Colorado have seen health plans exit the ACA market, feeding the speculation that the public exchanges are in trouble.

Most recently, Blue Cross and Blue Shield of Minnesota announced that it was departing the individual market, leaving nearly all its ACA enrollees to find another plan for 2017. The Minnesota Department of Health estimates that the decision will affect about 20,000 exchange enrollees and 100,000 individual policyholders outside the exchange.

Narrower networks and innovative approaches

Colorado has also seen insurers exit: Humana and UnitedHealth Group have announced they will leave the public exchange marketplace. But the state has a new carrier that says its innovative approach to networks will help it successfully manage ACA populations.

Bright Health, a health insurance startup from Minneapolis, is partnering with Centura Health in Colorado to offer a narrow, but deep, network of providers to insured members. According to Kyle Rolfing, president and co-founder of Bright Health, providers with the Centura system, from primary care to specialists, will work together with Bright Health in a coordinated system that uses the latest technology to provide care.

“When we work with only one health system, we can collaborate in different ways than a health plan that works with multiple systems,” Rolfing says. “We sacrifice some things by partnering exclusively with one health system — not all providers are in network, and we don't cover all geographies. But we think those sacrifices are worth it, because the economics are better and we think the patient experience is much better.”

Patterson says the narrower network that Bright Health provides may offer a glimpse of how the health exchange model will evolve. “I think the movement is toward care coordination,” he says. “It's a tricky balance—I think consumers want a lot of choice. But when they see how much that choice costs them, people get a little bit of sticker shock. I think the carriers are trying to balance what the people want with the fact they may not want to pay that much for it.”

A study by McKinsey & Company found that price pressures are changing the way consumers think about insurance. The study found 71 cases where insurers worked with a health system in a co-branded relationship, indicating a narrow network — up from 36 in 2014.

“Purchasers of individual exchange plans are apt to be more price-sensitive and more willing to accept network restrictions in return for more affordable premiums. To be competitive in this new price-sensitive marketplace, payers are looking to lower the cost of their individual plans through the use of limited (narrow or tiered) networks,” the study says.

Nefouse agrees that concerns about the cost of health insurance are starting to outweigh the desire for a wide range of provider choices. He goes so far as to say that the PPO model — a more choice-oriented model that replaced the HMO for many carriers — is dying in the Indiana market. “We're seeing really narrow networks,” he says. “If you look at the companies that pulled out of Indiana — Assurant, Humana, UHG — they were all running PPO networks. They came into a post-ACA market with a pre-ACA product lineup. It didn't work.”

Patterson says there is a certain amount of stabilization going on in the insurance market, with larger carriers cutting back and smaller carriers seeking to innovate in order to gain market share.

The future of the insurance exchange model, both public and private, may rest on the ability of different stakeholders to adapt to a changing industry. As the consumer-directed model predicted, providing consumers with more skin in the game may have permanently changed the way Americans think about buying health insurance. In the future, providing the best deal, as well as an acceptable range of choice, may be the recipe for success.